RFPs are evil (Part 2)

Last week, I discussed why the practice of using RFPs to select SEM agencies is a wrongful approach that practically guarantees failure. This week, I will propose a better way to select SEM agencies that is more likely to result in a positive outcome for you and your organization.

To recap, RFPs are useful procurement instruments when businesses need to choose from a large number of competing suppliers of goods or services that are equivalent or near equivalent in quality. For example, putting out an RFP makes sense when contemplating the purchase of a fleet of copying machines, a PBX phone system, or an office-cleaning firm. While there may be material differences among the offerings of these suppliers, the impact of even extremely poor choices have limited effects on any organization's bottom line, so it's usually safe to leave this procurement decision to a low or mid-level underling.

In contrast, the consequences of choosing the wrong outside law firm, accounting firm, ad agency or SEM agency can be catastrophic for the enterprise. This is why such high-stakes, mission-critical decisions are made by CEOs, instead of being left to underlings. And yet, as we saw last week, CEO's all too often "delegate down" the decision about which SEM agency to pick to low or mid-level Search Managers who, while knowing a lot about the mechanics of search, know very little about how to select a strategic partner. This crucial, avoidable misstep begins the cycle of failure that starts with unprofitable, failing search campaigns and only ends when the marketer either decides to ditch his SEM agency, bring PPC management in-house, or withdraw from the search marketplace entirely.

Lawyers aren't all the same, nor are accountants, nor are ad agencies. Some are brilliant, some merely competent, and some are hopeless, incompetent blunderers. Unless you really believe that all SEM agencies are fundamentally alike, you shouldn't be using an RFP to select them.

The good news is that choosing the right SEM agency isn't difficult, as long as you know how to ask the right questions. Here are four important questions to ask your prospective SEM agency that will reveal more meaningful information about a given agency's fitness than can ever be gleaned through an RFP process:

1. How long has the SEM agency been in business?

No CEO would choose an outside legal or accounting firm that's only been in business a few years, nor should any CEO choose an SEM agency that's only been in business a few months. Any partner you choose should be stable, have an established track record, and have the financial muscle required to make the kind of ongoing investments in technology, training and R&D required to manage search in a rapidly evolving, technology-driven marketplace.

2. How fast is the SEM agency growing?

You're partnering with an SEM agency to grow your business, so it's entirely fair to ask if this prospective agency itself is growing. An anemic overall growth rate is a clear indication that the SEM agency is doing something wrong. Be warned, however, that all forms of growth are not the same. Internal growth (growth of the agency's client spend) is a far better indicator of future success than external growth (via acquisitions or simply adding clients). So ask your prospective SEM agency about the percentage of its overall growth contributed by internal growth. Is it 50 percent? 75 percent? A healthy internal growth rate is a reliable indicator that your prospective SEM is on the ball: After all, if its clients are spending more money year over year, they're doing so because the agency has been effective in delivering significant benefits in the form of positive ROI and market share augmentation.

3. How much money does the SEM agency have under management?

If you were evaluating financial management firms, you'd ask how much money each firm has under management. Is it $30,000 or $30 million? Most investors would be more comfortable entrusting their money to a firm that's demonstrated its ability to manage larger sums of money. In the same way, an SEM agency that successfully manages hundreds of millions of dollars worth of clients' search spend has demonstrated that it is able to handle large and complex search campaigns.

The amount of money under management of any given SEM agency can be derived from several research organizations, including an annual survey published by MarketingSherpa. But be advised that MarketingSherpa doesn't independently investigate any claims made by the agency. If your prospective SEM agency refuses to give you a straight answer about how much money it has under management, or if you have doubts about the accuracy of published figures, you'll need to do a bit of detective work by calling up Google, Yahoo and MSN, and checking the SEM agency's quoted figure. Any discrepancies should raise a red warning flag that you shouldn't ignore.

4. What do industry authorities say about the SEM agency?

Instead of sending out RFPs to a large group of SEM agencies in shotgun fashion, take a look at what neutral evaluation firms such as Jupiter Research have to say about them. These impartial firms specialize in separating SEM agency performers from under-achievers. (Consequently, more than a few SEM agencies are unwilling to submit to Jupiter Research's ongoing evaluation process, fearing that they'll be identified as the latter.)

Jupiter's formal evaluation process is thorough and grueling, and its findings are the closest this industry has to an objective benchmark. SEM agencies are rated according to a variety of criteria, so it's an excellent way to arrive at a shortlist of able candidates.

Conversely, you should approach any SEM agency that hasn't submitted to Jupiter's evaluation process with extreme caution. Chances are there are very good reasons this agency has decided not to let Jupiter Research benchmark its search management capabilities!

In conclusion, choosing the right SEM agency for your enterprise might seem like a daunting task, but it's simpler than many would think. As long as you regard your partnership with an SEM agency as a strategic partnership, not as a low-level procurement decision, ask the right questions, and consult with neutral evaluation firms, you'll be more likely to escape the fate of the many marketers who, sadly, chose the wrong SEM agency and paid an extremely heavy price.